Citi cuts first-quarter iPhone production estimates on weak demand

By Sonam Rai and Stephen Nellis

Updated 29 Dec 2018 — 8:27 AM, first published at 8:21 AM

San Francisco | Citi Research reduced its first-quarter production estimates for Apple's iPhones and nearly halved expectations on the costliest iPhone XS Max, joining other brokerages in lowering forecasts amid reports of weak demand.

"The material cut in our forecasts is driven by our view that 2018 iPhone is entering a destocking phase, which does not bode well for the supply chain," analyst William Yang wrote in a client note.

Citi said it expects the company to make 45 million iPhones for the quarter, down from 50 million it forecast earlier. The cut was mainly due to weak outlook for the iPhone XS Max, Yang said.

"The material cut in our forecasts is driven by our view that 2018 iPhone is entering a destocking phase, which does not bode well for the supply chain," Citi analyst William Yang wrote in a client note. Bloomberg

The brokerage lowered its forecast for the number of units produced in the first quarter of iPhone XS Max, which starts at $US1099, by 48 per cent.

Shares in Apple edged 0.1 per cent higher to $US156.23 in Friday trading in New York; the stock has tumbled by one third since reaching a record high of $US233.47 in early October.

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According to a Wall Street Journal report in November, Apple cut production orders for all three iPhone models launched in September.

Shares in Apple's Asian suppliers and assemblers slid in November after several component makers forecast weaker-than-expected sales, leading some market watchers to call the peak for iPhones in several key markets.

Citi has "sell" ratings on iPhone assemblers Hon Hai Precision Industry and Foxconn Technology said it sees Hon Hai as particularly vulnerable, with higher exposure to the new models.

In early December, TF International Securities analyst cut its first-quarter iPhone shipment estimate by 20 per cent.

But other analysts remain positive on Apple. Also on Friday, analyst Tom Forte of DA Davidson reiterated his "buy" rating on Apple stock and a $US280 price target based on a Reuters report earlier this week that Apple plans to begin using Foxconn to assemble some of its newest iPhone models in India in 2019.

Forte said in a note to clients he believes some of the decline in Apple's stock in recent weeks has been related to concerns that a trade conflict between the United States and China could hurt the iPhone maker.

Increased manufacturing in India could help reduce tariff concerns around the iPhone, he wrote.

"While Apple has one of the highest exposures to tariff risks, it is also the best positioned to mitigate these risks. Part of this belief was based on the company's size and ability to both negotiate pricing and terms with its manufacturers and move its manufacturing out of China," Forte wrote.